From Volume 8, Issue 22 of EIR Online, Published June 2, 2009
Russia and the CIS News Digest

Primakov: Downgrading Dollar 'Not Rational'

May 28 (EIRNS)—Amid continuing official enthusiasm from the Kremlin, along with Brazilian and Chinese officials, about setting up "multiple reserve currencies" and moving toward George Soros's "supranational currency" scheme, senior Russian figure Yevgeni Primakov has thrown some cold water on these notions. Addressing a meeting of the Mercury Club May 18 of his Chamber of Commerce and Industry, Primakov said that "it would be counterproductive to return to the previous world financial and monetary system," but he scolded people who have romantic fantasies about an overnight leap to "multipolarity" in the monetary system.

Said Primakov, "A rational approach to world financial reform is not compatible with the notion that it would be possible to downgrade the U.S. dollar, in the near-term post-crisis perspective, to a regional currency or to create a new international supercurrency. In the future, this obviously will happen, but not when the U.S.A. remains a leading power in international economic relations. The situation will change, but gradually. One should not strive to turn the ruble into a reserve currency without first advancing Russia to the status of a leader in sectors of the world economy. It is not the export of oil and gas, but the development of the domestic market that makes for a stable ruble. Expanding the use of the ruble in international settlements and as a reserve currency may be a strategic goal, but one cannot artificially promote its achievement, since doing so would have heavy political and economic costs."

For Russia, Primakov added, "Participation in forming a new international financial architecture should in no way be a higher priority than developing the Russian national financial market, which needs to become a self-sufficient system and a real source of credit resources for our entrepreneurs."

Russian Economy Shrinks, Unemployment Surges

May 26 (EIRNS)—The Russian economy contracted by 10.5% in April, and 9.8% in the first four months of 2009, Deputy Economic Development Minister Andrei Klepach said in Moscow today, Prime Tass reported. Investment has contracted 15.8% so far this year, and industrial production nearly 17% in April, Klepach said. He also reported that the Russian foreign trade surplus has shrunk by 50% this April, from a year ago, to $7.5 billion. Klepach tried to claim that the economy is "hitting bottom." but acknowledged that the "depth of the slowdown, the scale of the fall is still increasing, but the pace is slowing down."

Unemployment figures belie Klepach's claims of bottoming out. Unemployment is at a nine-year high, according to figures released by Rosstat, the federal statistics service, on May 22. Some 200,000 people lost their jobs in April, sending unemployment up to 10.2% of the economically active population. This means that 7.7 million people are unemployed—and 3.2 million of them have lost jobs just since August 2008. These estimates do not include guest workers. Real wages contracted by 3%, the worst figure in 10 years.

Rosstat also reported that foreign direct investment slumped by over 30%, to $12 billion, in the first quarter of 2009.

Today, Deputy Finance Minister Oksana Sergiyenko said that the economic contraction could be 50% deeper this year than it was in the crisis year of 1998. She warned that government revenues will be 300 billion rubles ($9.66 billion) less than anticipated by the current federal budget, and that "if the [economic] situation is less favorable [than anticipated], then the [federal] deficit may exceed 9% of GDP."

Russia Today reported that with the budget deficit at this level, all of Russia's Reserve Fund, set up with oil revenues, will be exhausted by the end of this year. Finance Minister Alexei Kudrin has said that Russia will have to raise $10 billion on international markets to fund its deficit next year, to avoid going to the IMF.

Russian Railcar Production, Gas Output Collapse

May 28 (EIRNS)—What Russia's latest production collapse statistics mean on the ground, can be seen in the latest reports from the rail transport and natural gas sectors.

During the first quarter of 2009, the national rail system Russian Railways experienced a 26% drop in freight traffic and a 12% decline of passengers. "We thought there would be stagnation, with no growth," quoted Russian Railways CEO Vladimir Yakunin saying in April, "We thought it might drop by 1-2%, but we did not in the least suppose that passenger carriage could decline by 12%. But that is what has happened."

On May 25, the Ural regional press agency carried a dramatic report on Yakunin's forthcoming June 5 trip to Yekaterinburg. He will be hosted by Nikolai Vinnichenko, Medvedev's recent appointee as Presidential Representative in the Ural Federal District. The main topic is the crisis situation at Uralvagonzavod (UVZ), the giant army tank and rolling-stock factory in Nizhny Tagil, where currently over 20,000 workers are laid off.

Trade union sources told they may stage a mass demo outside Vinnichenko's office in Yekaterinburg while Yakunin is there. The situation is dire. The plant, pride of the Sverdlovsk Region, is "on the brink of not surviving." The railcar assembly lines are shut down, and only the military tank production unit is still working. The workers are receiving two-thirds of their base pay, which itself is far less than their salaries (made up of base pay plus standard supplements). As against normal annual output of 20,000 railcars, the only order they have is to make 300 petroleum tank cars for Freight One, a Russian Railways subsidiary. Unless Yakunin comes up with some business for the factory, they're finished, concludes

Also starkly troubled is Gazprom, one of the biggest companies in the world, and Russia's biggest taxpayer. As of mid-March, the Ministry of Energy reported, Gazprom's output was down 25% year-on-year. Its revenue has been savaged by the drop in natural gas prices: Last year Gazprom sold gas to Europe at $409/thousand cubic meters; this year it is projecting an average price of only $260/tcm. A Eurasianet report dated March 24 reflected continuing close attention by hostile strategists, as from Britain's James Sherr of the RIIA in earlier articles, to Gazprom's troubles as a Russian vulnerability. Calling Gazprom "suddenly embattled," the Eurasianet report noted that Gazprom locked in what are now relatively very high prices, negotiating contracts with Central Asian gas suppliers back in Spring 2008. Natural gas market watchers project that Gazprom will lose $3.5 billion on these purchases of 15 billion cubic meters (bcm) from Turkmenistan, 15 bcm from Kazakstan, 7 bcm from Uzbekistan (the total being equal to about 14% of Gazprom's production in 2008).

Russian, Ukrainian Economists Talking About LaRouche

May 28 (EIRNS)—There is so much discussion of Lyndon LaRouche's forecasts and proposals, in the Russian-language part of the Internet, that one forum participant recently commented, "LaRouche is everywhere; soon he'll be crawling out of your household fixtures." Today, another anonymous blogger wrote, "I've gotten information about a person named Lyndon LaRouche. If I had my way, I would tear down any remaining monuments to Lenin, and put up monuments to Lyndon LaRouche. Lyndon LaRouche is an economist, who forecast all of the essential milestones of today's World and Russian economies."

On the Inoforum site, an upstart discussion project which translates articles from the world press, a Russian translation of the "Dialogue with Lyndon LaRouche: Barack Obama and the Nazi Doctors," drew five pages of commentary, nearly a hundred posts. Some of them were violently anti-American, but many others expressed just plain shock.

At the same time, a handful of leading Russian and Ukrainian economists are highlighting LaRouche's record more and more—some of them by choice, others because they can't avoid it.

At an April 24-25 conference in Kiev, called the Council of Slavic Peoples of Belarus, Russia and Ukraine, Progressive Socialist Party of Ukraine leader Natalia Vitrenko invoked LaRouche's record of accurate forecasts. Vitrenko, a Ph.D. in economics, also laid out, before an audience which included prominent Russian figures, LaRouche's demand to put the Fed and the whole system through bankruptcy reorganization.

Mikhail Khazin, president of the Moscow consulting company Neokon, has made a name for himself as Russia's leading forecaster of the current crisis. Though he interviewed Lyndon LaRouche for Russian Orthodox Church television in May 2007, Khazin usually avoids publicizing LaRouche's record, and, when pressed, states that LaRouche is a great thinker, "but not an economist." Recently, Khazin has been pressed very often, with listeners to his interviews and visitors to his blog constantly peppering him with the question, "What do you think about LaRouche?" On May 27, interviewed on the Voice of Russia radio station by Prof. Igor Panarin, Khazin said that Paul Krugman and other analysts were picking up material from his, Khazin's, writings. But he added, unprompted, that LaRouche has been talking about the crisis much longer: "At the same time, we should clearly understand that some elements of the theory of the crisis have been around, with different people. For example, Lyndon LaRouche stated them already in the 1980s. He used the not entirely precise [sic] term 'physical economy,' which means the following: that no economy can exist, if the financial sector is larger than the real sector."

All rights reserved © 2009 EIRNS